CHAPTER 2 The Dynamic Environment of International Trade

CHAPTER 2

The Dynamic Environment of International Trade


I. Players in the World’s Economy

- G7

- NICS

- LDCS

World Population Top 10-1995In Millions

Bangladesh: 122

Taiwan: 124

Japan: 126

Pakistan: 131

Russian Federation:

150

Brazil: 162

Indonesia: 194

United States: 263

India: 939

China: 1,208

Rest of World: 2,397

World Population Top 10-2020In Millions

Taiwan: 162

Russian Federation: 165

Bangladesh: 210

Nigeria: 227

Brazil: 260

Pakistan: 280

Indonesia: 303

United States: 329

India: 1,578

China: 1,711

Rest of World: 3,907

World GNP Top 10-1995In Billions

Brazil: $484

Spain: $570

Canada: $595

China: $677

U.K.: $1,076

Italy: $1,183

France: $1,352

Germany: $1,999Japan: $4,247

United States: $6,659

Rest of World: $6,255

World GNP Top 10-2020In Billions

Spain: $1,283

U.K.: $1,601

Taiwan: $1,825

Italy: $1,989

Korea: $2,184

France: $2,184

Germany: $3,707

China: $4,126Japan: $10,037

United States: $11,195

Rest of World: $15,474

Percentage of World Total

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

U.S. Germany Japan France U.K. Italy Canada

Country

ExportsImports

Merchandise Exports and Imports (1999)

Source: International Monetary Fund, International Financial Statistics, Washington D. C., December 1999.

U.S. Direct Investments Abroad, 1998

Canada10.6%

Other32.8%

Panama2.7%

Australia3.4%

Switzerland3.9%

Brazil3.9%

Japan3.9%

France4.0%

Bermuda4.2%

Netherlands8.1%Germany

4.4%

United Kingdom18.2%

Host-Country Host-Country SharesShares

Source:Survey of Current Business, Bureau of Economic Analysis, U.S. Department of Commerce, Washington D.C. July and August 1999: pp. 50 and 52

Foreign Direct Investments in the U.S., 1998

United Kingdom18.6%

Switzerland6.7%France

7.7%

Canada9.2%

Germany11.7%

Netherlands11.9%

Japan16.3%

Other17.8%

Source:Survey of Current Business, Bureau of Economic Analysis, U.S. Department of Commerce, Washington D.C. July and August 1999: pp. 50 and 52

Parent-Country Parent-Country SharesShares

The Nationality of the World’s 100 Largest Industrial Corporations (by country of origin)

SOURCES: Adapted from “The World’s 500 Largest Industrial Corporations,” Fortune, Aug. 4, 1997

1963 1979 1984 1990 1993 1995 1997

United States 67 47 47 33 32 24 24

Germany 13 13 8 12 14 14 13

Britain 7 7 5 6 4 1 2

France 4 11 5 10 6 12 13

Japan 3 7 12 18 23 37 29

Italy 2 3 3 4 4 3 4

Netherlands-United Kingdom 2 2 2 2 2 2 2

Netherlands 1 3 1 1 1 2 2

Switzerland 1 1 2 3 3 3 5

Argentina - - 1 - - - -

Belgium - 1 1 1 - - -

Brazil - 1 - 1 1 - -

Canada - 2 3 - - - -

India - - 1 - - - 1

Kuwait - - 1 - - - 1

Mexico - 1 1 1 1 - 4

Venezuela - 1 1 1 1 - -

South Korea - - 4 2 4 2 -

Sweden - - 1 2 1 - -South Africa - - 1 1 - - -Spain - - - 2 2 - -Turkey - - - - 1 - -

4

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

The Nationality of the World’s 100 Largest Industrial Corporations (by country of origin)

United States 67 47 47 33 32 24 24 36Germany 13 13 8 12 14 14 13 12Britain 7 7 5 6 4 1 2 5France 4 11 5 10 6 12 13 11Japan 3 7 12 18 23 37 29 22Italy 2 3 3 4 4 3 4 3Netherlands-United Kingdom 2 2 2 2 2 2 2 --Netherlands 1 3 1 1 1 2 2 5 Switzerland 1 1 2 3 3 3 5 3Argentina -- -- 1 -- -- -- -- --Belgium -- 1 1 -- -- -- -- 1Brazil -- 1 -- 1 1 -- -- -- Canada -- 2 3 -- -- -- -- --India -- -- 1 -- -- -- -- --Kuwait -- -- 1 -- -- -- -- --Mexico -- 1 1 1 1 -- 1 --Venezuela -- 1 1 1 1 -- 1 --South Korea -- -- 4 2 4 2 4 --Sweden -- -- 1 2 1 -- -- --South Africa -- -- 1 1 -- -- -- --Spain -- -- -- 2 2 -- -- --Turkey -- -- -- -- 1 -- -- --China -- -- -- -- -- -- -- 2

1963 1979 1984 1990 1993 1995 1996 2000

2-4

Irwin/McGraw-Hill


II. Some History

- Pax Romana

- Pax Americana

- Pax Pacificana

III. The Price of Protectionism

1. Trade Barriers

- Tariff Barriers

- Non-tariff Barriers

The Price of Protectionism

Total Costs to Number of Cost perIndustry Consumers Jobs Saved Job Saved

(in $ millions)

Textiles and apparel $27,000 640,000 $ 42,000

Carbon Steel 6,800 9,000 $ 750,000

Autos 5,800 55,000 $ 105,000

Dairy products 5,500 25,000 $ 220,000

Shipping 3,000 11,000 $ 270,000

Meat 1,800 11,000 $ 160,000

SOURCE: Michael McFadden, “Protectionism Can’t Protect Jobs,” Fortune, May11, 1987, pp. 125.

The Effects of Tariffs

Increase Inflationary pressures. Special interests’ privileges.

Government control and political considerations in economic matters.

Weaken Balance-of-payments positions. Supply-and-demand patterns. International understanding (they can start trade

wars).

Restrict Manufacturer’ supply sources. Choices available to consumers

Competition.


IV. Major Categories of Non-tariff Barriers

1. Specific Limitations on Trade

- Quotas

- Licensing

- Minimum Import Prices

2. Customs and Administrative Entry Procedures

- Antidumping Practices

- Tariff Classification

- Documentation

- Fees


3. Standards

- Include standard disparities; testing methods, and packaging/labeling

4. Government Participation in Trade

- Procurement Policies

5. Charges on Imports

- Prior import deposits

- Administrative fees


6. “Voluntary” or Orderly Agreements

7. Other

- Service barriers

- Investment barriers

* Note that most common forms of non-tariff barriers are subsidies and quotas.


V. Transnational Institutions

1. International Monetary Fund

2. World Bank

3. World Trade Organization

( Formerly GATT )

4. Regional Institutions

What WTO Will Mean to Different Industries

Banks would be allowed to compete freely in South Korea and other places where they are restricted.

Insurance companies would be able to sell policies in India, one of the Worlds most tightly closed markets.

Movies would have better protection from Thai film counterfeiters.

Pharmaceuticals would have better protection from Argentine imitators.

Computer software makers would have better protection from Brazilians who rip off copyrighted programs.

GainersGainers

SOURCE: Adapted from “What free trade will mean to different Industries,” Fortune, August 26, 1991, P.92

What WTO Will Mean to Different Industries

Glassware tariffs as high as 30 percent on inexpensive drinking glasses would be reduced, threatening some 40,000 jobs.

Textiles would gradually lose quotas and tariffs that protect 1.1 million U.S. workers - and add 50 percent to wholesale prices of clothing.

Peanuts would lose quotas that limit imports to a handful and that protect 19,000 American farmers.

Dairy imports of foreign cheese, now limited to 19,000 tons a year, would go up, hurting 240,000 U.S. farmers.

Sugar import ceilings, now 25 percent of the nine million tons the United States uses each year, would go, threatening 11,000 sugar beet and cane growers.

LosersLosers

SOURCE: Adapted from “What free trade will mean to different Industries,” Fortune, August 26, 1991, P.92.

Ties that Bind: Japanese Keiretsu and Toyota

Toyota has a typical keiretsu family with financial ties to its most important suppliers. Some of those companies, with the percentage of each that Toyota owns:

Lighting Koito Mfg. 19.0 %Rubber Toyoda Gosel 41.4Disc Brakes Akebona 13.9Transmissions, clutches, brakes Aisin Seiki 22.0Clocks Jeco 34.0Electronics Nippondenso 23.6Seat belts, switches Tokai Rika 28.2Steel Aichi Steel Works 21.0Upholstery material Kyowa Leather 33.5Door sashes, molding Shiroki 13.2Painting Trinity 30.2Mufflers Futaba Industrial 13.2

SOURCE: Adapted from “Japan: All in the Family,” Newsweek, June 10, 1991, p 38.

Ford’s Keiretsu

VEHICLE ASSEMBLYCompany Country Percent Equity

Mazda Japan 25%Kia Motors Korea 10%Aston Martin Lagonda Britain 75%Autolatina Brazil-Argentina 49%Iveco Ford Truck Britain 48%

PARTS PRODUCTION

Company Country Component Percent Equity

Cummins U.S. Engines 10%Excel Industries U.S. Windows 40Decoma International Canada Body Parts, Wheels 49

SOURCE: Adapted from “Learning from Japan,” Business Week, January 27, 1992, p. 55.

Documents

CHAPTER 2 The Dynamic Environment of International Trade